Best Healthcare ETFs for Q4 2022

Investing News

Healthcare exchange-traded funds (ETFs) invest in a basket of stocks of companies that provide medical services, develop medical equipment or drugs, offer medical insurance, or facilitate the provision of healthcare to patients. Some notable companies in the healthcare sector include UnitedHealth Group Inc. (UNH), Pfizer Inc. (PFE), and Merck & Co. Inc. (MRK).

Because the majority of healthcare services and products are often seen as necessities rather than as discretionary purchases, the healthcare industry is considered noncyclical. This can make healthcare ETFs a strong position in a defensive portfolio.

Key Takeaways

  • The healthcare sector outperformed the broader market over the past year.
  • The healthcare exchange-traded funds (ETFs) with the best one-year trailing total returns are IHF, PPH, and XLV.
  • The top holdings of these ETFs are UnitedHealth Group Inc. for the first and third fund, and Mckesson Corporation for the second fund.

On Jan. 31, 2022, the U.S. Food and Drug Administration (FDA) fully approved Moderna Inc.’s (MRNA) vaccine for the prevention of COVID-19 in individuals 18 years of age or older. The vaccine, which has been available under emergency use authorization (EUA) since December 2020, is now being marketed as Spikevax. It was the second COVID-19 vaccine to gain full approval from the FDA after the vaccine co-developed by Pfizer and BioNTech SE (BNTX), marketed as Comirnaty, was approved in August 2021. In May 2022, the FDA placed limits on the COVID-19 vaccine created by Johnson & Johnson (JNJ), citing safety concerns related to a rare blood-clotting condition.

The healthcare ETF universe is composed of about 33 distinct ETFs that trade in the U.S., excluding inverse and leveraged ETFs as well as funds with less than $50 million in assets under management (AUM). As of Aug. 29, 2022, the healthcare sector, as measured by the S&P 500 Health Care sector index, has outperformed the broader market with a total return of -4.6% over the past 12 months compared with the S&P 500’s total return of -9.3%.

The best healthcare ETF, based on performance over the past year, is the iShares U.S. Healthcare Providers ETF (IHF). We examine the top three healthcare ETFs below. All figures below are as of Aug. 30, 2022.

  • One-Year Trailing Total Return: 1.5%
  • Expense Ratio: 0.39%
  • Annual Dividend Yield: 0.55%
  • Three-Month Average Daily Volume: 61,958
  • Assets Under Management: $1.5 billion
  • Inception Date: May 1, 2006
  • Issuing Company: BlackRock Financial Management

IHF tracks the Dow Jones U.S. Select Health Care Providers Index, which measures the performance of various health service organizations. IHF is a blended multi-cap fund. It provides exposure to domestic companies that specialize in healthcare, diagnostic research, and medical devices. The fund is primarily composed of the health and commercial service sectors.

The top three holdings of IHF are UnitedHealth Group, a company focused on healthcare plans for individuals and businesses; CVS Health Corporation (CVS), which provides health insurance benefits and operates various retail locations focused on goods like pharmaceuticals and self-care products; and Elevance Health Inc. (ELV), a health benefits company that helps customers find various care solutions.

  • Performance Over One Year: -5.2%
  • Expense Ratio: 0.35%
  • Annual Dividend Yield: 1.63%
  • Three-Month Average Daily Volume: 181,843
  • Assets Under Management: $552.0 million
  • Inception Date: Feb. 1, 2000
  • Issuer: VanEck

PPH aims to track the MVIS U.S. Listed Pharmaceutical 25 Index, which gauges the performance of companies operating within the pharmaceuticals industry. The ETF provides exposure to U.S. and international companies involved in the research and development, production, and sales of pharmaceuticals. It focuses on the most liquid companies based on market capitalization and trading volume. The fund follows a blended strategy of investing in a mix of growth and value stocks across developed markets.

The top three holdings of PPH are McKesson Corporation (MCK), a company that produces pharmaceuticals and other medical devices; Astrazeneca PLC Sponsored ADR (AZN), a British-Swedish pharmaceutical and biotechnology company; and Eli Lily and Company (LLY), a healthcare company that produces and distributes pharmaceutical products.

  • One-Year Trailing Total Return: -5.9%
  • Expense Ratio: 0.10%
  • Annual Dividend Yield: 1.36%
  • Three-Month Average Daily Volume: 8,391,262
  • Assets Under Management: $38.1 billion
  • Inception Date: Dec. 16, 1998
  • Issuing Company: State Street

XLV seeks to track the Health Care Select Sector Index, which gauges the performance of the healthcare segment of the U.S. equity market. The market-capitalization-weighted ETF provides exposure to companies that offer healthcare equipment, supplies, and services, as well as companies that operate within the biotechnology and pharmaceutical industries. It is focused on large-cap growth stocks.

The top three holdings of XLV are UnitedHealth Group; Johnson & Johnson (JNJ), which develops medical devices, pharmaceuticals, and consumer packaged goods; and Pfizer, a pharmaceutical and biotechnology company.

The comments, opinions, and analyses expressed herein are for informational purposes only and should not be considered individual investment advice or recommendations to invest in any security or adopt any investment strategy. Though we believe the information provided herein is reliable, we do not warrant its accuracy or completeness. The views and strategies described in our content may not be suitable for all investors. Because market and economic conditions are subject to rapid change, all comments, opinions, and analyses contained within our content are rendered as of the date of the posting and may change without notice. The material is not intended as a complete analysis of every material fact regarding any country, region, market, industry, investment, or strategy.

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